340B Program: HRSA Issues Administrative Dispute Resolution Final Rule

On December 14, 2020, the Health Resources and Services Administration (HRSA) published a final rule (Final Rule) in the Federal Register defining an administrative dispute resolution (ADR) process for the 340B Drug Pricing Program (340B Program). The Final Rule takes effect 30 days after that date of publication, on January 13, 2021. A blackline of the Final Rule marked against the 2016 proposed rule is available here.

The Final Rule establishes an ADR process for two types of disputes:

  1. “Claims by covered entities that may have been overcharged for covered outpatient drugs purchased from manufacturers”; and
  2. “Claims by manufacturers of 340B drugs, after a manufacturer has conducted an audit of a covered entity . . . . that a covered entity may have violated the prohibitions against duplicate discounts [i.e., that a Medicaid rebate was invoiced for a drug purchased at the 340B ceiling price] or diversion [i.e., that the covered entity transferred 340B drugs to a person that is not a 340B ‘patient’ of the covered entity].”

We have addressed the provisions of this process in more detail below.


In 1996, HRSA published a voluntary process for resolving certain disputes between manufacturers and covered entities in the 340B Program. The 1996 notice requires “specific facts showing that there is a genuine and substantial issue of material fact in dispute that requires a review” in order to trigger the process. In 2010, the Patient Protection and Affordable Care Act amended the 340B statute to require the Secretary of Health and Human Services (HHS) to promulgate ADR regulations to resolve the foregoing two categories of claims, specifically to:

  1. establish a decision-making body within HHS to review these claims;
  2. establish deadlines and procedures for the ADR process;
  3. establish a process by which covered entities can obtain supporting information for their claims;
  4. require manufacturers to conduct audits of covered entities before submitting claims to the ADR process;
  5. permit the decision-making body to consolidate claims brought by more than one manufacturer; and
  6. adopt procedures to allow covered entities to pursue claims jointly against manufacturers.

HRSA then issued an Advance Notice of Proposed Rulemaking and request for comments (ANPRM) on September 20, 2010, which requested comments on the ADR process established as part of HRSA’s 1996 Manufacturer Audit Guidelines, followed (six years later) by a Notice of Proposed Rulemaking (NPRM) published on August 12, 2016. The NPRM was removed from the HHS regulatory agenda in 2017 in accordance with a White House memorandum freezing pending regulations, but HHS “did not formally withdraw the NPRM, but rather left it open as a viable option.”

The Final Rule is being issued after two separate lawsuits were initiated by 340B covered entity groups and covered entities that, among other things, seek to compel HHS to complete final rulemaking for the ADR process pursuant to the 340B statute.[1] The plaintiffs in these separate lawsuits allege that certain manufacturers’ recent actions limiting the use of contract pharmacies by 340B covered entities constitute a refusal to offer drugs to covered entities at the 340B ceiling price and therefore constitute a violation of the 340B statute and the manufacturers’ pharmaceutical pricing agreements (PPAs). The plaintiffs likely did not bring claims against the manufacturers themselves because the U.S. Supreme Court has held that 340B covered entities may not sue manufacturers for alleged violations of the PPA, and that there is no private right of action to enforce alleged violations of the 340B statute, with enforcement of both left to the Secretary.[2] The plaintiffs seek court orders that would be binding on the government, with part of the relief sought being completion of the ADR Final Rule – which the government has now issued, absent court order and while this litigation remains pending.

Claims Permitted; Jurisdiction

As noted above, there are two types of claims permitted under the Final Rule[3]:

  • A covered entity may pursue a claim “that it has been overcharged by a manufacturer for a covered outpatient drug, including claims that a manufacturer has limited the covered entity’s ability to purchase covered outpatient drugs at or below the 340B ceiling price.”[4]

  • A manufacturer may pursue a claim, “after it has conducted an audit of a covered entity [pursuant to the 340B statute,] [finding] that the covered entity violated [the duplicate discount prohibition or diversion prohibition], including claims that an individual does not qualify as a patient for 340B program purposes and claims that a covered entity is not eligible for the 340B Program.”[5]

Importantly, HRSA has clarified in the preamble that the ADR panel “will necessarily have jurisdiction to resolve all issues underlying any claim or defense, including, by way of example, those having to do with covered entity eligibility, patient eligibility, or manufacturer restrictions on 340B sales that the 340B ADR Panel deems relevant for resolving an overcharge, diversion, or duplicate discount claim in a fair, efficient, and expeditious manner.”[6] HRSA added that such issues may include “whether someone is a ‘patient’ or whether a pharmacy is part of a ‘covered entity’”[7] – two topics with respect to which HRSA does not have rulemaking authority, with the second point being particularly significant in light of the pending contract pharmacy litigation and disputes. HRSA also states that the ADR Panel will have jurisdiction “to resolve all issues underlying any claim or defense,” including, “by way of example, those having to do with …manufacturer restrictions on 340B sales that the ADR Panel deems relevant,” but that “a challenge to a manufacturer’s [Average Manufacturer Price] or [Best Price] calculations is beyond the scope of this jurisdiction.”[8]

A manufacturer may pursue a claim using the ADR process only after it has conducted an audit of the covered entity, and HRSA is not revising its 1996 audit guidelines, which one commenter noted “are outdated and do not allow for a functioning ADR process.”[9] HRSA has long pointed to the audit right as manufacturers’ singular remedy for covered entity malfeasance but has failed to enforce manufacturer audit results. Presumably, HRSA expects manufacturers to try to enforce audit results through the ADR process, in effect further diminishing the effectiveness of the audit right by imposing yet another burdensome procedural hurdle.

Establishment of the ADR Board and Panel

Under the Final Rule, HHS is to establish a 340B ADR Board “consisting of at least six members appointed by [HHS] with equal numbers from [HRSA], the Centers for Medicare & Medicaid Services (CMS), and the Office of the General Counsel (OGC) . . . .”[10] The HRSA Administrator can then select three-member ADR panels from the Board, with one member each from HRSA and CMS (each with drug pricing, drug distribution, and other relevant 340B experience), and OGC (with complex litigation expertise). By contrast, in the proposed rule, a three member ADR Panel would have been chosen from an undefined roster of eligible individuals. Under both the proposed and final rules, a non-voting, ex-officio member from the HRSA Office of Pharmacy Affairs is chosen to assist each three-member ADR Panel. ADR Panel members will be screened for conflicts of interest and can be removed for cause or replaced if they cannot complete their duties.


  • Timely filing of claims. Claims for damages or equitable relief must be filed in writing with HRSA within three years of the date of the alleged violation. Discussion of relief in damages or equity is new in the Final Rule. The three-year window likely means that the manufacturer must have completed the covered entity audit within that period, opening the door to delay tactics during the audit to run out the clock.

  • Jurisdictional threshold. The Final Rule introduces a new provision that gives the ADR Panel jurisdiction to entertain a petition only “where the damages sought exceed $25,000 or where the equitable relief sought will likely have a value of more than $25,000 during the twelve-month period after the 340B ADR Panel’s final agency decision,” provided the petition asserts permissible claims.[11]

  • Supporting documentation. Claims must be supported by sufficient documentation. According to the preamble to the Final Rule, if a party does not have access to all needed documentation, HRSA may request a written summary of attempts to work in good faith to resolve issues with the other party.

  • Combining claims – covered entities. Two or more covered entities may jointly file claims, if each covered entity could have filed the claim on its own and consents to do so, including submission of supporting documentation. Covered entity associations or organizations may further file claims on behalf of two or more covered entities if each such entity could have independently filed that claim, is a member of the association or organization, can meet the supporting documentation requirements, and consents to the representation.

  • Combining claims – manufacturers. Two or more manufacturers may file a consolidated claim so long as the “ADR Panel determines that such consolidation is appropriate and consistent with the goals of fairness and economy of sources.”[12] Joint claims by associations representing manufacturers are not permitted.

  • Notice. A covered entity or manufacturer filing a claim under the ADR process must notify the respondent by mailing a copy of the petition to the respondent’s general counsel or other senior official within three days of filing the petition. The respondent will have 30 days to submit a written response, or the ADR Panel may enter a final agency decision by default in favor of the petitioner. In a proceeding for damages where there is such a ruling on the merits by default, the petitioner must still introduce evidence sufficient to support the claim for damages. The proposed rule had required responses to be filed within 20 business days and, in the absence of such filing, the ADR panel was to make a decision based on the information available.

  • Discovery. The Final Rule permits a covered entity, with permission from the ADR Panel, to engage in “limited discovery to obtain such information and documents as may be relevant to demonstrate the merits of a claim,”[13] but there is no similar right available to manufacturers. The ADR panel also may request additional information from either party, and HRSA notes that this leaves open the possibility for a manufacturer to ask the ADR Panel to request further information from a covered entity.

  • Failure to respond to an information request. Also new in the Final Rule, if the ADR Panel finds that a party has failed to respond or fully respond to an information request, the ADR Panel may: “(1) [h]old[] facts to have been established in the proceeding; (2) [p]reclud[e] a party from presenting or contesting a particular issue; (3) [e]xclud[e] evidence; or (4) [enter j]udgment in the proceeding or dismiss[] the proceeding.”[14]

  • ADR Proceedings. HRSA added a new section in the Final Rule to govern conduct in the ADR proceeding, requiring the ADR panel to conduct an evidentiary hearing, unless the claim is resolved through a motion to dismiss or a motion for summary judgment, and permitting the panel to otherwise “determine, in its own discretion, the most efficient and practical form of the ADR proceeding.”[15]

  • Application of the Federal Rules of Civil Procedure (FRCP). Many of the additional procedural considerations of the ADR Panel are to be governed by the FRCP.

Final Agency Decision

Unlike the propose rule, the Final Rule explicitly states that, pursuant to a grant of authority from the Secretary of HHS, the ADR panel “decision constitutes a final agency decision that is precedential and binding on the parties involved, unless invalidated by a court of competent jurisdiction.”[16] The proposed rule indicated only that the ADR panel had the authority to make a binding decision. The ADR panel is to make decisions by majority rule and pursuant to a preponderance of the evidence standard. The decisions will be publicly available (e.g., posted on HRSA’s website). The Final Rule does not provide for an appeals process, and states that “an aggrieved party has a right to seek judicial review under section 10 of the Administrative Procedure Act (5 U.S.C. § 706).”[17]


HRSA has declined to establish the form and scope of enforcement based on ADR decisions and findings or the underlying manufacturer audit, explaining that the government should be permitted “maximum flexibility in determining what is appropriate given the specific facts of each situation.”[18] Thus, enforcement could entail such “appropriate action” by HRSA, or it could entail HRSA’s “referral to another HHS Operating Division or to another Federal agency,” such as the OIG.[19]


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As always, it is important that you carefully review this regulation in light of considerations that may be relevant to your organization and specific drugs. Please feel free to contact the Hogan Lovells Government Price Reporting Team if you have any questions or concerns.


Authored by Alice Valder Curran, Christopher H. Schott, Ken Choe, Kathleen A. Peterson, Samantha D. Marshall, James M. Deal, and Mahmud Brifkani


[1] See Ryan White Clinics for 340B Access, et al. v. Azar, et al., Case No. 20-cv-2906 (D.D.C.) (complaint filed Oct. 9, 2020); Nat’l Ass’n of Cmty. Health Ctrs., et al. v. Azar, et al., Case No. 20-cv-3032 (D.D.C.) (complaint filed Oct. 21, 2020).

[2] See Astra USA, Inc. v. Santa Clara Cty., Cal., 563 U.S. 110 (2011). 

[3] 85 Fed. Reg. 80,642 (Dec. 14, 2020).

[4] Id. at 80,645 (codifying scope of claims subject to 340B ADR process at 42 C.F.R. § 10.21).

[5] Id. (same).

[6] Id. at 80,636.

[7] Id. at 80,633.

[8] Id.

[9] Id.

[10] Id. at 80,644 (codifying at 42 C.F.R. § 10.20).

[11] Id. at 80,644-45 (codifying at 42 C.F.R. § 10.21(b)).

[12] Id. at 80,645 (codifying at 42 C.F.R. § 10.21(e)(3)).

[13] Id. (codifying at 42 C.F.R. § 10.22(a)).

[14] Id. (codifying at 42 C.F.R. § 10.22(c)).

[15] Id. (codifying at 42 C.F.R. § 10.23).

[16] Id. at 80,646 (codifying at 42 C.F.R. § 10.24(d)).

[17] Id. at 80,641 (preamble).

[18] Id. at 80,642.

[19] Id


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